Washington Times Review of Coase's "How China Became Capitalist"

A new book by Ronald Coase, age 101, is an event in itself. Mr. Coase, the 1991 Nobel laureate in economics, revolutionized the field by challenging conventional wisdom regarding the nature of business firms and how so-called public goods can be provided. One of his main contributions is the concept of “transaction costs,” which are the costs individuals incur in making an economic exchange. In striking contrast to most contemporary economists, Mr. Coase did not choose the approach of complicated model-making, nor did he find delight in crunching numbers. Instead, Mr. Coase wanted to be a scholar of reality. He consistently studied markets for what they are, rather than for what they might be. In this sense, he is perhaps the most distinguished contemporary disciple of Adam Smith.

Mr. Coase was not among the most prolific economists of the 20th century — but he was certainly one of the most influential. His new book, coauthored with Ning Wang, assistant professor at Arizona State University, investigates the capitalist awakening of the Chinese economy. To understand “How China Became Capitalist,” Mr. Coase and Mr. Wang take a deep look into the Chinese mind. The authors maintain that “China has always been a land of commerce and private entrepreneurship” but embraced the institutions of a modern capitalist economy only “after one century and a half of self-doubt and self-denial.”

Mr. Coase and Mr. Wang emphasize how institutional change is not merely the outcome of the interplay of different interests. A common vignette of pro-market reforms in Deng China portrays a ruling class desperately seeking to stay afloat, even at the price of watering down its own ideology. Those who subscribe to this picture argue that such a drift toward pragmatism is best epitomized by Deng Xiaoping quoting an old Sichuan saying, “It doesn’t matter if a cat is black or white, so long as it catches mice.”